4 Multiple-choice question (4 points, 2 each) With increasing returns to scale,

Question

4 Multiple-choice question (4 points, 2 each) With increasing returns to scale, production f(K, L) (a) definitely more than doubles when you double labor input L (b) definitely less than doubles when you triple all inputs (c) definitely more than doubles when you double all inputs (d) definitely at least triples if you double all inputs The law of diminishing marginal returns (a) does not hold when the marginal product is always positive; (b) has to hold when an additional unit of capital produces more extra output than an additional unit of labor (e) has to hold when increasing capital makes labor more productive (d) holds when the marginal product eventually becomes smaller

Explanation / Answer

1> c

Reason

Increasing returns to scale occurs when the output increases by a larger proportion than the increase in inputs during the production process.

2> d

The law of diminishing marginal returns is a law of economics that states an increasing number of new employees/capital causes the marginal product of another employee/capital to be smaller than the marginal product of the previous employee/capital at some point.

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